NMTC WORKSHOP October 21, 2016
AGENDA 11:45-11:55 Introductions Our Agenda • Our Panelists: • Daniel Arndt, New Jersey Community Capital – Phyllis Reich & Tadessech Lewis, TD Bank – Jerry Velasquez, Cumberland County Improvement Authority – Damien Wilson, Moderator, Monge Capital – 11:55-12:15 What is the NMTC Program? Program background • What are the acronyms; LIC; QALICB; QLICI; QEI ? • What is a Community Development Entity (CDE)? • What is the role of investor/lender? • 12:15-12:35 How does NMTC Work? Project Readiness- how do you know you have the "right stuff" ? • The model and how funds move through the NMTC transaction • What are the ongoing reporting requirements? • 12:35-12:45 Case Study The Millville Arts and Business Innovation Center, Millville, NJ • 12:45-1:00 Questions and answers
New Jersey Community Capital (NJCC)
New Jersey Community Capital (NJCC) New Market Tax Credits
New Jersey Community Capital (NJCC) Case Study: Accurate Box
TD Bank NMTC Portfolio TD Bank has invested over $155 million in 37 transactions leveraging over $350 • million in total investments in nine states. In addition, TD Bank Community Development Corporation (TDCDC) has received • four NMTC allocations totaling $325 million resulting in more than 25 projects financed in Florida and the Carolinas.
Monge Capital The Monge Capital Advantage Overview • Monge Capital (MC) is a minority owned and operated firm focused on providing advisory services and capital solutions for operating businesses and real estate projects with a focus on public/private partnerships. MC advisory service clients include equity investors, developers, retailers, operating businesses, banks, governmental agencies, and not-for-profit institutions. • MC leverages its economic development and private equity experience with a strong knowledge of urban development and real estate finance to maximize results for clients. MC has extensive expertise in direct equity investing and the usage of a variety of City, State and Federal financing programs including a niche focus on New Markets Tax Credit (NMTC) and Historic Tax Credit financing as well as a vast knowledge of NJEDA products. • MC has closed on over $900 million of complex projects with public and private financing. • Jeff Monge, an NMTC industry veteran, led one of the largest NMTC allocatees in the country winning 4 of 5 rounds totally $198 million in NMTC allocations and closing over $350 million of leveraged transactions.
What is the NMTC Program? Background NMTC program was first authorized in 2000 to stimulate commercial investment in • qualified low-income, rural, and native communities. Since 2002, the CDFI Fund through a competitive application process awards NMTC • allocation authority to CDEs. CDEs are able to attract capital investments with their allocation, and the proceeds are • used to fund low interest rate loans or investments in qualifying businesses or commercial real estate developments
What is the NMTC Program? Low Income Communities Based on census tract data: poverty rate, area median income and unemployment • (mapping tool www.cdfifund.gov) Other criteria apply • Benefits Investments made in businesses or economic development projects generate a federal • tax credit equal to 39% of the total investment. Recipient: • Capital to fund projects, business expansion or debt refinancing. Tax credits are • monetized to fund a portion of the capital stack Low cost of capital and “permanent equity” • Community Benefits • Create economic development for the local community • Attract and retain skilled workforce • Bring new goods or services to underserved communities • Catalytic impact •
What Are the Acronyms? Community Development Entities must use… • Substantially All of the proceeds from… • Qualified Equity Investments to make… • Qualified Low-Income Community Investments in… • Qualified Active Low-Income Community Businesses located in… • Low-Income Communities… •
What Are the Acronyms? CDEs must use… • Substantially All of the proceeds from… • QEIs to make… • QLICIs in… • QALICBs located in… • LICs… •
What is a CDE? Community Development Entities (CDEs) have a primary mission of providing investment • capital for low-income communities and are accountable to the residents of that community through a governing or advisory board CDEs are the recipients of the NMTCs, have defined geographic areas, evaluate potential NMTC • transaction and review community impact. CDEs can be found using a search engine on the CDFI Fund website at www.cdfifund.gov • CDEs issue QLICI loans to the project QALICB, and post closing, manage compliance and loan • servicing Organizations that have been certified as CDFIs by the CDFI Fund and organizations that have been designated as Specialized Small Business Investment Companies by the Small Business Administration automatically qualify as CDEs.
What Is the Role of Investor/Lender? Banks can participate in the NMTC program as investors or lenders (or both). The NMTC program is an important tool in helping meet customer needs. more flexible loan terms for borrowers. • a portion of equity stays in the project after the 7 year compliance period • The NMTC program helps banks meet their financial goals. competitive returns on equity investments. • leveraged lenders earn rates at or near market and are able to participate in transactions that • would not be feasible without the NMTC subsidy. The NMTC program can help banks meet their CRA (Community Reinvestment Act) requirements. NMTC investments enable banks to target investments in projects that generate social impact outcomes such as job creation; services such as health care or education; and support other positive activities in low income communities.
Project Readiness How Do You Know You Have the "Right Stuff "? NMTC Project Readiness – The 4 Ps Professionals , Proposals, Projections, Property • Professionals: Selecting Counsel • Accounting (financial modeling and project projections) • Project/NMTC Consultants • CDEs •
Project Readiness How Do You Know You Have the "Right Stuff "? NMTC Project Readiness – The 4 Ps Proposals • Leverage Lenders -Have they financed a NMTC project before? -Commitment Letters/Letters of Interest Soft loan/Grant Sources -Commitment Letters -If public source-evidence that funds can be used with NMTC program -Bridge financing needed, if so is a lender identified/committed? -When are funds available to be used and what is needed to draw down funds "But for" test
Project Readiness How Do You Know You Have the "Right Stuff "? NMTC Project Readiness – The 4 Ps Projections Project Assumptions -Market Study/Analysis -LOls-Signed Leases? Project pro forma -Projections demonstrating cash flow; debt service coverage. Collateral Available? Loan to value ratio? Developer's Experience -Project Sponsor's track record and financial capacity -Guarantors financial capacity
Project Readiness How Do You Know You Have the "Right Stuff "? NMTC Project Readiness – The 4 Ps Property Location -Eligibility (Census Tract & Use) -Agreement of Sale –Not expired -Evidence of Site Control Zoning, Project Approvals -evidence of all zoning approvals -Community Support Environmental -Phase I and or Phase II in place? How old are the reports? Contract/ Plan -General Contractor and Architect on board? -Construction Documents
Following the Movement of Funds Sample Flow Chart
Post-Closing Reporting on Community Benefits and Impact 7 year reporting requirement Community Benefits Agreement CDFI Fund looks for: • Jobs • Minority Business Support • Commercial Goods and Services • Environmentally Sustainable Features • Community Goods and Services • Healthy Food Financing • Flexible Lease Rates • Community Transformation • Housing Units • Local Community Support
Case Study Millville Arts & Business Innovation Center (Millville, NJ)
Case Study Millville Arts & Business Innovation Center (Millville, NJ) Aerial Map
Case Study Millville Arts & Business Innovation Center (Millville, NJ) Before Photo
Case Study Millville Arts & Business Innovation Center (Millville, NJ) Construction Photo
Case Study Millville Arts & Business Innovation Center (Millville, NJ) Project Budget
Case Study Millville Arts & Business Innovation Center (Millville, NJ) Project Flow Chart MILLVILLE NMTC TRANSACTION MODEL proceeds of NJDCA grant; Taxable Bond Issue; County College Bonds TD Bank NMTC investor $2.2MM equity investment Cumberland County leveraged loan payments Improvement Authority seven year stream of tax credits (leveraged lender) Millville Arts Center Fund, LLC (Investment Fund) distributions to QEI Investment Fund $6.75MM 99.9% interest in sub-CDE CLFNJ, Inc. NJCC CDE Middlesex, CDE Manager LLC sub-CDE QLICI A loan $4.7MM QLICI B loan $1.9MM loan payments to sub-CDE Millville Urban Redevelopment Arts & Millville Urban Innovation Center Corporation ground lease Redevelopment QALICB/Real estate owner Corporation (MURC)
Q&A Thanks For Attending
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